"Liquidity is confidence", says Fed Governor Kevin M. Warsh. Now, that's a statement. Warsh's speech is worth reading, because it provides an attempt at defining global liquidity in more than just monetary terms. In fact, Warsh's argument is based on a "loanable funds theory of interest-rate determination" (*). This is much simpler than it sounds: financial innovation, he implies, leads to an increase in the supply of loanable funds ― and thus to a lower cost of capital across the board.

As to the yield curve, its days as a recession predictor are all but over: "Thus, to the extent that low long-term Treasury yields and the negative slope of the yield curve reflects a lower term premium, rather than a lower expected short rate, it is less likely to signal future economic weakness". Interesting ―and important― stuff.